Elias: Making the most constructive, fair tax changes

From the moment it passed in 1978, there has been little doubt that Proposition 13 is unfair. On any given block, residents who bought their homes on or before the magic 1975 assessment date contained in the landmark tax-limitation initiative pay far less property tax than neighbors in similar homes who bought later.

These differences can run as high as $10,000 per year in coastal counties where houses that sold for about $50,000 in 1975 now bring more than $1 million.

Just as unfair are parcel taxes. In almost all cases, these levies assess an identical amount on each piece of property in a given city, county or school district. So a 1,000-square-foot house pays the same tax as a 500,000-square-foot resort hotel.

That's patently unfair, and the only reason parcel taxes are so popular today — mostly among school districts — is that when voters OK ordinary property tax increases for schools, only a small part of the new money stays with the local district.

Parcel tax money, however, all stays home, the reason why — inequitable as that levy may be — more than 55 percent of such proposals in recent years have passed and almost all have won more than 50 percent of the vote.

The simple reality that both Proposition 13 and parcel taxes are unfair, though, is no reason for state legislators either to make things even more inequitable or to do something more stupid.

For sure, trying to force a change to a "split roll" in Proposition 13 would not be a smart move today. Some California businesses already feel beleaguered by state taxes. A split roll would exacerbate this sense.

It would leave property assessment methods unchanged for residential property while taxing commercial real estate on the basis of current market values rather than basing them on the most recent sales price of any property.

It's understandable that some businesses feel burdened, with California's sales tax the nation's highest and its gasoline, income and corporate levies among the highest.

Plus, there's a better way to reform Proposition 13 than split roll, which could not take effect without passage of another ballot measure. That would be to change some of the assessment rules and definitions adopted by legislators in 1979, just after Proposition 13's passage.

This would take only a simple majority in each house of the Legislature, not a popular vote or the two-thirds needed for lawmakers to place a proposition on the ballot.

The rules now allow some commercial and industrial properties and apartment buildings to evade reassessment when they're sold, so long as no one individual controls more than a 50 percent stake in the new ownership.

Estimates of how much this could raise vary between $5 billion and $12 billion additional each year, not as much as a split roll might bring in, but still a boost to state coffers about equal to what last year's Proposition 30 tax hikes accomplished.

This change would also be eminently fair: Residential properties are always reassessed when they change hands, the new tax amounting to 1 percent of the sale price, with increases in the tax limited to 2 percent yearly. Why should other types of property get better treatment?

But instead of looking seriously at this reform, the huge Democratic majorities in the Legislature instead have talked up the notion of helping schools by dropping the margin needed for passing a parcel tax from the current two-thirds majority to 55 percent.

That would be the same margin needed now to pass school construction bonds, a major difference being that school bond repayments are not assessed as a flat fee, all properties paying the same amount, as with most parcel taxes.

What's more, if legislators fixed the Proposition 13 reassessment loopholes created in 1979, the money raised could obviate much of the need for local parcel taxes.

Sure, there would be resistance to fixing the assessment rules, but not nearly as much as the blowback from trying to impose a split roll.

The bottom line: If legislators want to provide more money for schools and other services, there is a way to do it fairly and without making life harder for homeowners, renters or most California businesses.

Thomas Elias of Santa Monica is an author and columnist. Email him at tdelias@aol.com.